The nation’s third largest solid waste company
sold its compost and mulch unit to a private equity firm as the organics
recycling market may start to see more acquisitions.

Fort Lauderdale, Florida-based Republic Services, Inc.
sold Living Earth Technology Co. (LETCO) to Hunt Special Situations Group
LP in Dallas for $37 million late last year.

LETCO is the largest commercial provider of mulch,
compost, soil and other landscaping material in Texas. Republic Services
reported at the time of the sale that LETCO has average annual revenues
of $50 million and generates low double-digit operating income margins.

“The timing and the price were right and we executed the
sale,” said Will Flower, vice president of communications at Republic
Services. “The divestiture of LETCO was consistent with Republic’s long-term
business strategy, which is to focus on our core business of collecting,
recycling, transferring and disposing of municipal solid waste in a cost-effective
manner.”

Flower described LETCO as a non-core, stand-alone business. “The LETCO
business model expands beyond the processing of recyclable waste material
to include purchasing raw materials from suppliers, packaging finished
product for resale to large retailers and the sale of non-processed material,
such as landscape rock and stone to consumers,” he said.

LETCO, based in Dallas, operates 13 compost and mulch facilities, primarily
in the metro areas of Dallas and Houston. Its products include a variety
of mulches, compost, blended soils and soil amendments sold under the
“Earth’s Finest” and “Living Earth” trade names. LETCO sells its products
to commercial landscaping contractors, nurseries and large retailers.

Mark Rose, who has worked in the composting and mulch industry for 26
years, will continue to lead LETCO as president under the ownership of
Hunt. Rose declined to provide details about the acquisition. “It would
just divulge our business strategy,” he said.

However, a statement provided at the time of the LETCO sale provides
insight to where LETCO is headed, which may include growth throughout
Texas and beyond.

“Our partnership with Hunt will allow LETCO, once independent, to realize
its full potential, pursue strategic opportunities and continue to provide
excellent products,” said Rose, who has been with LETCO since 1991 when
Republic Services purchased the company.

“In addition, we see an opportunity in continuing to scale the business
through the development of new locations and select acquisitions. We
look forward to taking advantage of Hunt’s financial and non-financial
resources,” Rose added in the initial press statement.

Hunt, which focuses on middle-market investments in a variety of industries,
also did not respond to questions about the acquisition. However, Phil
Arra, president of Hunt, said at the time of the LETCO acquisition that
the deal was consistent with the firm‘s investment philosophy.

“It’s an opportunity to invest constructively and maximize the value
of a business in transition. We look forward to working collaboratively
with management to maximize the value of LETCO,” Arra said in the statement.
“In such a fragmented industry, LETCO will continue to be a market leader
and promote a variety of green and environmentally friendly initiatives.”

LETCO and other mulch and composting companies are only a small fraction
of the $7.2 billion lawn and garden industry, according to research by
Freedonia Group, Inc. in Cleveland.

The market researcher predicts that demand in the United States for packaged
lawn and garden consumables will grow 4.9 percent annually through 2010.
The research firm said the best opportunities for new products are ones
that offer convenience and good performance.

While LETCO is one of the largest mulch and composting companies in the
country, the industry remains fragmented, said Ron Alexander, president
of R. Alexander Associates, Inc., an environmental consulting firm that
specializes in organics recycling in Apex, North Carolina.

Alexander said there are a few companies that may try to go national.
But he said that most companies in the organics recycling industry are
still small, regional players. A big company involved in composting today
is one that owns two or three facilities, Alexander said.

This market fragmentation leaves plenty of room for acquisitions, like
the private-equity buyout of LETCO, or for regional players to expand
by buying others, Alexander said.

This year might turn out to be more difficult for compost marketing because
of the current downturn in construction, Alexander said. Less construction
means less landscaping.

“I think the downturn in the economy and less building may hurt us,”
he said.

Last year was also a difficult one, Alexander said. There was flooding
in parts of the country and drought conditions in other regions. “We
just had a bad weather year,” he said.

Despite some of these localized market conditions, Alexander said there
are some exciting developments underway in the composting market. He
said that mulch and compost is starting to be used more extensively in
environmental applications like erosion and sediment control.

Alexander said the biggest issue facing the organics recycling market
is a general lack of knowledge about compost and mulch as well as composting
as an environmental process. “I’m not sure that as a nation we have gotten
the whole composting thing dialed in with the American public, but we
need to.”

Of the 245.7 million tons of municipal solid waste generated annually,
according to the EPA, yard trimmings and food scraps constitute 24 percent
of the waste stream. The EPA estimates that 56.9 percent of yard trimmings
are recovered for composting, while only 2.6 percent of food waste is
currently composted each year.

The EPA reports that compost prices have reached as high as $26 per ton
for landscape mulch and more than $100 per ton for high-grade compost,
which is sold at the retail level.